Making Profits with SPOT Forex Options

Forex options while not new are being embraced by currency traders all over the world. Understanding options requires some study but it also has the ability to limit risk. Options are very simple to understand. A buy or purchase option gives you the right to purchase a certain currency at a certain price on or before a certain date. Now, you do not have to buy the currency but you have the right to buy it. If it goes down in value it makes no sense to purchase the currency at a higher price. However, it the price of the currency moves up then it is worth it to buy it at a cheaper rate. This locks in your profit. A sell option works just the opposite of a purchase option. In order to induce someone to sell you an option you must give them a premium for the rights to buy it a lower price. In essence they are betting that the market will move the other way and they just get to pocket your premium.

Single payment options trading (SPOT options), is the same basic principle as stock options and give the right but not the obligation to buy the currency that you have optioned. Trading a spot option allows you to pick your scenario and then wait the time period you have chosen and then pocket the proceeds if you are correct. SPOT options are easy to trade because if the scenario plays out you profit and if it does not all you have lost is the premium that you paid.

Spot options allow you have a wide variety of choices when trading and the fact that the options are automatically converted to cash is a great benefit. However, because of the simple structure of the trade the premiums on SPOT options are much higher than other types of Forex options.

SPOT options provide you with a limited financial risk and an unlimited upside potential that allows you to pick the time frame for your trades. These options also require less money up front and no leverage. Hedging your position is easier and more profitable with options and allows you to limit your risk even further. If you are a smaller trader, options allow you to act on your predictions of what the market will do over a long period of time and perhaps profit more than you would if you had to take cash positions and actually wait on the market.

SPOT options also have some downside as well and they include the fact that the premium varies depending on the type and date on the option and this makes the risk/reward variables fluctuate. SPOT options cannot be traded. Once you set it you, you are locked in till the end. Predicting exact dates in the Forex market is near impossible.

In conclusion, with a proper plan, trading SPOT options can make you a lot of money, but for them to work effectively they require you to spend time with the fundamental aspect of trading, as well as long-term technical charts. SPOT options are not for the short-term but are a long-term profit opportunity with a limited risk.